State should set aside money for unemployment

North Carolina needs to stabilize its unemployment compensation fund, but not on the backs of the jobless.

Thanks largely to a classic example of mismanaging a surplus, North Carolina owes the federal government $2.5 billion the state had to borrow to pay unemployment benefits.

When governments run a surplus, especially in a fund that is sensitive to economic cycles, there are three options. The classic Democratic course is to spend the money. The classic Republican course is to cut taxes. The right course is to set the money aside so it is available for the next economic downturn.

In the 1990s, when the state unemployment compensation fund was flush, the General Assembly elected to cut the taxes that support it. Automatic increases kept the fund solvent through the recession of 2002-03. By 2008, it was more than $500 million in the black. Then the Great Recession hit.

There was no possible way to pay the benefits mandated by law with the tax structure in place. North Carolina, as did many other states, had no choice but to go to Washington for the money. Due to its tax policies, North Carolina wound up with the nation's third highest debt, after New York and California.

The Revenue Laws Study Committee last week unveiled a plan to repay the $2.5 billion by 2015, or three years sooner than would be possible otherwise. This would forestall higher federal taxes and also replenish the fund, its supporters say.

There are some modest increases in employer taxes, and those firms that now do not pay unemployment taxes will do so for the first time. But most of the money would come from sharply reducing benefits. The maximum weekly stipend would fall from $535 to $350 and would be payable for only 20 weeks instead of 26.

"We have to make the system solvent. Otherwise, it will fail everyone in the state," said Sen. Bob Rucho, R-Mecklenburg, co-chair of the committee. "What we're going to try to do is ... to make sure that everybody is helping provide the solvency of the system."

The state Chamber of Commerce, which was involved in drafting the plan, accepts the outcome. "Business knows that the road to solvency is going to involve higher taxes," Gary Salamido of the chamber told the committee. "In comprehensive reform, business is willing to do its part."

The North Carolina Justice Center had a different view: "The proposal is the most extreme reduction of benefit amounts, duration, and eligibility that any state has enacted or seriously considered."

The center disputes claims that the change will put North Carolina more in line with other states. "It puts North Carolina out of line with other states and disconnects the unemployment insurance system from the economy that it is meant to protect in a downturn. It is a proposal that is neither effective reform, balanced, or fair."

Lower benefits will reduce the amount of money paid out but it won't solve the problem of people being out of work, said Bill Rowe, advocacy director of the Justice Center. The state's unemployment rate was 9.3 percent in October.

"N.C. does need real reform of its unemployment insurance financing system, but such reforms must be informed by the lessons of the past and the needs of the future," the center said.

Rucho says the bill probably will go forward pretty much as written. The justice center hopes not. "The hope is more thoughtful deliberation and an opportunity for public input will be allowed when the measure is taken up by the legislature in 2013."

That is our hope, too.

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State should set aside money for unemployment

North Carolina needs to stabilize its unemployment compensation fund, but not on the backs of the jobless.